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Saskatoon's industrial market on its way to balancing

Sector is not there yet, but vacancy rate is ticking downwards as positive absorption rises
downtown saskatoon

Saskatoon’s industrial market isn’t quite what Barry Stuart would consider balanced, but it appears to be well on its way.

The vacancy rate ticked downwards to 6.04 per cent in the third quarter of 2019, while there was positive absorption of more than 20,000 square feet of space, according to the latest report from ICR Commercial Real Estate.

“I believe a balanced market is sub-5 per cent vacancy. Our two major markets are below 5 per cent,” said Stuart, the managing partner and senior sales associate of ICR Saskatoon. He was referring to the Marquis Industrial and North Industrial areas, which are reporting 3.74 per cent and 4.71 per cent vacancy rates, respectively.

He’s not surprised that Marquis is in the greatest demand because it has the newest inventory in the city.

Despite the improved vacancy rates, the average asking net rental rate has increased by only a nickel per square foot net to $10.41, compared with $10.26 per square foot in Q1 2019.

There is just under $1.5 million square feet of total vacancy throughout the city. The industrial sector represents nearly 50 per cent of Saskatoon’s total commercial real estate market.

The industrial situation has been helped by a curtailing of speculative development over the past few years after a period of oversupply.

“Net rental rates have dropped and land prices have increased so it’s more difficult to pencil in a new development with the rates we’re currently seeing,” he said.

Stuart doesn’t believe asking rates will change much in the near future.

“I believe developers will want to see a period of stability,” he said.

Retail market sees high supply

Saskatoon’s retail market, meanwhile, is still healthy but showing some signs that Stuart would like nipped in the bud.

For example, the vacancy rate inched up to 4.64 per cent overall and to 5.67 per cent in the downtown, new ICR figures show.

Supply has also exceeded demand, a trend that is expected to continue with a number of construction projects scheduled to wrap up before the end of 2019 or early in 2020.

Food delivery service SkipThe Dishes is having a negative impact on the hospitality sector as more people are eating at home instead of going out.

“It’s causing a pause or second thoughts for restaurants to open up. When a vacancy does appear, there might be some reluctance for a restaurant to open there,” he said.